K_1. Yigal Erlich

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    1

    Accelerating Innovation

    Presentation by Yigal Erlich

    Seoul

    April 2012

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    2

    Introduction

    Yigal Erlich

    Former Chief Scientist of the state of Israel

    Established the Technological Incubators Industry in Israel

    Founder & Manager of Israels anchor VC, Yozma

    Seed investor & active board member in technological

    startups such as Biosense (acquired by J&J for $430M),

    Conduit (current value: $1.3B) and Radiancy (traded in

    Nasdaq with market cap of $200M)

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    15 Years of Israeli Venture Capital Activityat a Glance

    More than 5,000 startups established

    NASDAQ: 100 Israeli high-tech companies are listed

    Main contributor to the economy, GDP, export and employment growth

    Human capital emerged as Israels main resource

    M&A: $28 billion, IPO: $6 billion

    $14 billion raised by Israeli VC funds

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    5Source: IVC Research Center

    VC Investments by Stageas % of Yearly Total 2002-2011

    2011 compared to 2008

    Seed/Early: 31% vs 41%, decrease of 32%Mid/Late Stage: 69% vs 59%, increase of 17%

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    Yozma Venture Capital (1)

    Mission: To create a venture capital market in Israel

    Policy:

    Establish a $100M Government investment company. Create professionally managed Funds.

    Entice VC investments in Israeli early stage companies:

    (i) create and invest in new VC funds together with

    experienced partners

    (ii) make direct investments in startup companies

    together with professional investors.

    Yozma Proprietary

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    Yozma Venture Capital (2)

    Investment method in Funds:

    Investment of $8M in each drop-down fund (minorityposition)

    A 5 year option to buy out Yozmas share at predeterminedconditions.

    YozmasCEO / VP will be a voting member on each Fundsinvestment committee.

    Same terms for all VC Funds

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    Yozma Venture Capital (3)

    Results:

    Establishment of 10 drop down funds together with strategicpartners ( 8 in the first two years).

    15 Direct investments

    8 out of the 10 drop-down funds have exercised their optionand bought out the Government

    9 out of the 15 companies Yozma Venture Capital hasinvested in directly, went public or have been acquired

    The Israel Venture Capital industry has been established

    Yozma Proprietary

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    Yozma Drop-Down Funds

    Yozma Proprietary

    FUND CAPITALMANAGED($MM)

    Original size 10 years later

    Eurofund 20 90

    Gemini 25 550

    Inventech 20 40

    JPV 20 675

    Medica 20 130

    Nitzanim-Concord 20 280

    Polaris 20 945

    Star 20 900VERTEX 20 250

    Walden 25 175

    210 4,035

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    Government Support

    Ministry of Industry - Chief Scientist support of industrial R&D

    $400m annually - grants, MAGNET, Incubators, other programs R&D cooperation with countries and large companies

    employees grants for up skilling and training programs

    Favorable tax regime and grants for investors and companies

    tax exemption for foreign investors in VC funds tax benefits and grants for export-oriented industries, R&D centers

    Science and education, reverse brain drain

    programs supporting excellence Talpiot, research projects and centers

    establishing 35 academic Excellence Centers, $400m annual budget

    Civilian commercial benefits of defense R&D

    exposure to cutting edge multidiscipline large technology projects

    special intelligence technology units: 8200, 8100, Air Force

    developed military industry RAFAEL, IAI, Elbit Systems

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    Building Blocks of Israels

    Innovative Technology Sector

    Academia,Universities,Engineers,

    Postgraduates

    Skilled EducatedMan Power,

    Immigration,Reverse Brain

    Drain

    Executives,Veterans from

    Global Firms

    Innovative &EntrepreneurialCulture, serial

    Entrepreneurs

    Venture Capital, Exit

    Avenues: M&As, IPOs

    ModernInfrastructure,

    GovernmentSupport

    AcademicScience and

    ResearchCenters,

    Researchers

    Defense R&D

    Multinationals:R&D Centers,

    Strategic

    Investors

    TechnologicalIncubators

    TechnologyClusters,Startups,

    Large

    Companies

    TechnologyInfrastructur

    e

    HumanCapital

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    Professional VC funds

    Capable to raise funds Choosing the right

    investments Managing the investments Building value for exit

    Government vs. VC role

    Government Involvement

    Market failure conditions Government as a catalyst Predetermined exit conditions No government control Indirect investments (funds) Risk sharing

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    Board level

    Assist/support management with strategic partners

    & customers

    Assist/support in recruitment of senior management

    Build/Approve Business Plan

    Help raise additional capital (Equity/Debt)

    Entice EXIT

    Step-in at crises.

    The Role of VC in early stage companies

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    Thank You